SUBJECT: INTERNATIONAL TRADE LAW

PROJECT TOPIC:
AGREEMENT ON TEXTILE AND CLOTHING

Submitted By

ADITI SHARMA
Roll no. 1202
3 Year , 6th Semester, B.B.A.LL.B(Hons.)

Submitted to

Dr. P. P. Rao
Faculty of International Trade Law

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

APRIL, 2017
AIM :
Enforcement of foreign awards in india.

OBJECTIVES:
1. To study the enforcement of foreign awards in India.
2. To study about the enforcement of foreign awards under New York and Geneva
Convention.

HYPOTHESIS:
Enforcement of foreign award under New York convention and Geneva convention is different.

RESEARCH METHODOLOGY
1. The researcher will be using doctrinal method. This includes primary and secondary
sources.

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 ACKNOWLEGEMENT
I take this opportunity to express my profound gratitude and deep regards to my guide Dr.P.P.
Rao for his exemplary guidance, monitoring and constant encouragement throughout the course
of this project. The blessing, help and guidance given by him time to time shall carry me a long
way in the journey of life on which I am about to embark.
I also take this opportunity to express a deep sense of gratitude to my seniors, the library staff
and my friends for their valuable information and guidance, which helped me in completing this
task through various stages.

I would also thank my Institution and my faculty members without whom this project would
have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

Aditi Sharma

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 CONTENTS

RESEARCH METHODOLOGY................................................................................................2

ACKNOWLEGEMENT..................................................................................................................3

INTRODUCTION...........................................................................................................................5

WTO AGREEMENT ON TEXTILE AND CLOTHING...............................................................7

IMPACT ON INDIAN TEXTILE AND CLOTHING INDUSTRY..............................................9

GLOBAL SCENARIO..................................................................................................................12

CONCLUSION..............................................................................................................................13

BIBLIOGRAPHY..........................................................................................................................14

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 INTRODUCTION
After more than forty years of import quotas, the textile and clothing sector will become subject
to the general rules of the General Agreement on Tariffs and Trade from 1 January, 2005.
Liberalization has been controversial because both textiles and clothing contribute to
employment in developed countries, particularly in regions where alternative jobs may be
difficult to find. In the European Union, for example, the sector is dominated by small and
medium-sized enterprises concentrated in a number of regions that are highly dependent on this
sector (Commission of the European Communities, 2003). Textiles and clothing are also among
the sectors where developing countries have the most to gain from multilateral trade
liberalization. The clothing industry is labour-intensive and it offers entry-level jobs for unskilled
labour in developed as well as developing countries. Job creation in the sector has been
particularly strong.

Textiles and clothing are closely related both technologically and in terms of trade policy.
Textiles provide the major input to the clothing industry, creating vertical linkages between the
two. International trade in the two sectors is regulated by the Agreement on Textiles and
Clothing (ATC) at the multilateral level, while bilateral and regional trade agreements typically
link the two sectors through rules of origin accompanying preferential market access.

At the micro level, the two sectors are increasingly integrated through vertical supply chains that
also involve the distribution and sales activities. Indeed, the retailers in the clothing sector
increasingly manage the supply chain of the clothing and textiles sectors. This development
probably started with the establishment of shopping malls such as Wal-Mart in the United States
in the 1970s. Wal-Mart insisted that suppliers implemented information technologies for
exchange of sales data, adopted standards for product labelling and methods of material
handling. This ensured quick replenishment of apparel, which in turn allowed the retailer to offer
a broad variety of fashion clothes without holding a large inventory. This approach has spread
throughout the industry in the United States as well as elsewhere (and to other industries),
shifting the competitive advantage of suppliers from being mainly a question of production costs
to becoming a question of costs in combination with lead time and flexibility.

The predicted changes post ATC are a substantial increase in market shares for China and India,
while previously unrestricted (no quotas or non-binding quotas) countries will lose market share
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as will also local producers in North America and the EU. However, as will be argued in the
discussion of the structure of the textile and clothing sectors, clothing is increasingly considered
as a perishable good where time to market matters. This will render producers in more remote
locations at a disadvantage, particularly in the fashion-segments of the clothing industry.

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 WTO AGREEMENT ON TEXTILE AND CLOTHING

Protection of the textile and clothing sector has a long history in United States and Europe. In the
1950s, Japan; Hong Kong, China; India and Pakistan agreed to voluntary export restraints for
cotton textile products to the United States. In 1962 a Long Term Agreement Regarding
International Trade in Cotton Textiles (LTA) was signed under the auspices of the GATT
(replacing a 1-year short-term agreement). The LTA was renegotiated several times until it was
replaced by the Multi Fibre Agreement (MFA), which came into force in 1974. The MFA, as the
name suggests, extended restrictions on trade to wool and man-made fibres in addition to cotton.

The MFA aimed at an orderly opening of restricted markets in order to avoid "market
disruptions". Like the LTA, it was supposed to be a temporary measure. The science of
quantitative trade policy analysis was not very well developed in the 1970s. The burden of proof
of what constituted a "market disruption" was therefore relatively weak and the agreement came
to comprise most developing country exports to the United States and the EU. By the end of the
second MFA (1981), 80 per cent of imports of textiles and apparel into United States were
covered by bilateral quota agreements with 20 countries and territories and by consultative
mechanisms with another 11 countries (Krishna and Tan, 1997). The MFA violated the
principles of the multilateral system in several ways:

• It violated the most favoured nation principle;

• It applied quantitative restrictions rather than tariffs;

• It discriminated against developing countries;

• It was non-transparent.

The MFA was renegotiated four times, the last time in 1991, and it finally expired in 1994. Six
developed countries applied quotas under the MFA during the final years of the agreement (the
EU, Austria, Canada, Finland, Norway and the United States), and the quotas were applied
almost exclusively to imports from developing countries (Francois et. al., 2000). The expiration
of the MFA did not, however, mean the end of quotas on textile and clothing exports from
developing countries. Instead the MFA was followed by the Agreement on Textiles and Clothing

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(ATC), which came into force with the establishment of the WTO in 1995. ATC is not an
extension of the MFA. Rather, it is a transitory regime between the MFA and the full integration
of textiles and clothing into the multilateral trading system. Four countries carried the MFA
restrictions into the ATC (Canada, the EU, Norway and the United States).20 The integration is
to take place in four steps over a 10- year period, as indicated in Table 5. The steps can be seen
as two separate processes: • The progressive integration of products into the GATT 1994 as the
integrated products are no longer part of the ATC but fall under the GATT; • The progressive
increase of the quotas that remain under the ATC.

The products to be included in the agreement are listed in the Annex to the ATC. This Annex
includes, however, items that were not restricted under the MFA and the list therefore served to
inflate the basis from which liberalization was calculated.

It is important to note that the percentages to be liberalized refer to total volume of trade in
textiles and apparel in 1990.21 The choice of products to be integrated in any of the stages is left
to the Members within the framework given by Article 2 of the ATC.

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 IMPACT ON INDIAN TEXTILE AND CLOTHING INDUSTRY

The elimination of quotas on T&C is expected to have a significant impact on the production,
exports, and employment in exporting countries in aggregate and a positive impact on the
welfare of consumers in importing countries. The quota-imposing countries-the United States,
EU countries and Canada-are expected to experience gains in welfare, despite a decline in
production of T&C, through reduced consumer prices and through increased efficiency following
enhanced specialization. For developing countries the net effect will depend on two factors:
while the terms of trade will deteriorate resulting in welfare loss, quota-constrained exporters
will experience an increase in efficiency as the distortionary trade regime is removed. The
impact on specific developing countries is expected to be mixed, as the elimination of quotas is
widely expected to lead to winners and losers. Most studies predict an increase in global welfare
as a result of the phasing out of the ATC quotas (Yang 1994). Furthermore, the gains are
expected to exceed those from the liberalization of other sectors in the Uruguay round (Nyugen,
Perroni and Wigle 1993). Estimates of the gains range from $23 billion to $324 billion (Trela
and Whalley 1990, 1995; Francois, McDonald, and Nordstrom 1994; Yang, Martin and
Yanagishima 1997; and Lankes 2002). The estimates of the increase in welfare for the EU are
around euros 25 billion (Francois, Glismann, and Spinanger 2000). The welfare impact on the
United States is estimated at $7.3 billion (Reinart 1993). The differences in the results of the
studies reflect differences in the methodologies including partial versus general equilibrium
modeling, the different base years for the data, differences in the sectoral and regional
aggregations used, and the absence of preference schemes from the GTAP database until
recently. For the major exporting developing countries, the studies provide mixed results (Yang,
Martin, and Yanagishima 1997). The WTO (Nordas 2004), using the GTAP model, concludes
that while there will be substantial increases in market shares for China and India, developing
countries where quotas were not restrictive are likely to lose. 1 This study estimates that China
will gain significantly, while India will increase its market share only modestly. 2 Francois and
1
This and other studies use 1995 or 1997 as the base. The results are based on the trade patterns observed in these
two years. The results presented in this paper use the updated 2001 base year.
2
Simulations, using 1997 as the base year, suggest that China will increase market share in the EU from 10 percent
to 12 percent for textiles, and from 18 percent to 29 percent for clothing, whereas India is projected to increase
market share in the EU from 9 percent to 11 percent for textiles and from 6 percent to 9 percent for clothing. For the
U.S. market, China’s share is expected to increase from 11 percent to 18 percent for textiles and triple in the clothing
sector, from 16 percent currently to half of the market after the phase out. India’s market share in the U.S. is
projected to remain at 5 percent for textiles, while its share of clothing is estimated to almost quadruple from 4

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Spinanger (2001) estimate that Indian clothing exports are likely to double after 2005. 3 For other
developing countries and regions such as Mexico, Bangladesh (Mlachila and Yang 2004),
Indonesia, the Philippines, and Hong Kong SAR, simulations suggest that the quota elimination
may lead to a decline in the U.S. market share. Latin American and sub-Saharan African
countries are expected to reduce exports of clothing significantly (Terra 2001, Avisse and
Fouquin 2001, and Francois and Spinanger 2001). Recent work include simulations using the
GTAP version 6, with 2001 as the base year (Cerra, Rivera and Saxena 2005, Manole 2005),
shows a fall in economic welfare for India due to deterioration in the terms of trade. Our paper
extends the analysis to scenarios with incomplete liberalization vis-à-vis China. The exports of
China, India, and other Asian countries are the most restricted. The degree of restrictiveness of
quotas is quantified by the export tax equivalent (ETE) of that quota. Exporters in countries
where the quotas were binding had to buy the quota. Since the market clearing supply of quotas
is not available, they sell at a premium, imposing in effect a tax on exports. Therefore increasing
restrictiveness leads to rising export tax equivalents. There are many estimates of ETEs in the
literature. Kathuria and Bhardwaj (1998) show that Indian exports to the United States faced an
ETE of 39 percent for cotton-based exports and have risen over time. Our estimates suggest that
ETEs on Indian exports are in the range of 6½-9 percent (Table 4). Until 2005, the United States
and the EU had binding quotas on many categories of textile and clothing products from India,
with many quota categories being 90 percent or more utilized. Terra (2001) estimates that the
clothing production of restrained producers could increase by 20 percent. Although the existing
literature on India suggests mixed results on the impact from the elimination of the quotas, the
extent to which exports grow post-2005 will be tempered by structural rigidities (discussed in
Section V) and the extent of the resurgence of protectionism. The United States and EU have
signed preferential regional trade agreements containing tariff exemptions. These agreements
and the Everything But Arms initiative provide quota free and duty-free imports in T&C with
certain groups of countries.4 Whilequota-free access to the EU and U.S. markets is likely to

percent to 15 percent.
3
It is argued that if the removal of quotas is supplemented with domestic reforms geared towards the textile and
clothing industry, welfare gains to India may be three times as high as compared to just the removal of quotas
(Kathuria et al 2001).

4
The United States has signed the Caribbean Basin Trade Partnership Act (CBTPA), the African Growth and
Opportunity Act (AGOA), the North American Free Trade Agreement (NAFTA), and the Andean Trade Preferences

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benefit currently constrained suppliers, this preferential access will also continue to impinge on
textile and clothing exports of countries without it, due to relatively high tariffs in this sector5

Furthermore, the use of a textile-specific safeguard provision contained in China's WTO

protocol of accession would be in other exporting countries’ favor 6 In addition, China has
voluntarily decided to curb exports by imposing a tax on exports of T&C. A major dampener to
the higher volumes of exports is the reduction in prices. In 2002, when quotas under the third
phase of integration were lifted, prices of apparel fell by an average of 34 percent. As a result of
increased competition and the disappearance of quota rents, it is estimated that China’s prices for
apparel declined on an average by 53 percent between 2001 and June 2004 (American Textiles
Manufacturers Institute).7

GLOBAL SCENARIO
This section analyzes trade patterns in textiles and clothing during the period 1995-2002.23
China was the world's largest exporter both of textiles and clothing in 1995 as well as 2002. Its
world market share (excluding intra-EU trade) increased from 22.5 per cent to 30 per cent over
this period in the clothing sector and from 16 to 22 per cent in the textile sector. The other
Act (ATPA). The EU accords preferential access to Eastern European countries and countries in the Mediterranean
rim. Its preferential trade agreements include the Euro-Mediterranean Association Agreements, Africa Caribbean
Pacific (ACP) Trade Agreement, and the Everything But Arms (EBA) Initiative with 49 least developed countries
5
The average post-Uruguay Round tariffs on textiles and clothing for the United States, EU, and Japan are 14.6
percent, 9.1 percent and 7.6 percent, respectively. At a disaggregated level, 52 percent of the textiles and clothing
imports in the United States have tariff rates of 15.7 percent to 35 percent, 54 percent of EU imports have duties
between 10.1 percent and 15.0 percent and 55 percent of the Japanese imports have the duties between 5.1 percent
and 10.0 percent (UNCTAD 2004)
6
On May 13 2005, the United States imposed safeguards, initiated in April 2005, on cotton knit shirts and blouses
(Category 338/339), cotton trousers (Category 347/348), and cotton and man-made fiber underwear (Category
352/652) limiting import growth to 7.5 percent. It claimed that the U.S. market is being disrupted with substantial
increases in imports of these products from China. In addition, currently there are other cases pending. On May 23,
2005, the EU initiated safeguards on two categories of textile products: t-shirts and flax yarn, constraining import
growth to 7.5 percent. Furthermore, on June 10, 2005, the EU and China agreed on an arrangement that will manage
the growth of Chinese textile imports to the EU until the end of 2008 on 10 categories of T&C.
7
Recently, the EU unveiled the new generalized system of preferences (GSP) under which India will continue to
enjoy GSP benefits for exports of clothing but not textiles to the EU. China will also lose the GSP benefits for
exports of T&C to the EU.

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dominant exporters of textiles in both years are Italy, Germany, Republic of Korea, Chinese
Taipei, France, Belgium, Japan and the UK, while Turkey and India had made it to the top 10 list
in 2002. Developed countries thus dominate exports in the textiles sector, indicating that the case
for continued protection is weak. In the clothing sector the major exporters in addition to China
are Italy; Hong Kong, China; Germany; France; Turkey; India; Indonesia; Republic of Korea and
Thailand. Mexico had made it to the top ten in 2002, ranking fifth, mainly due to NAFTA.

Since 1995 the share of the ATC countries (Canada, the EU and the United States) in world
imports of textiles has increased from about 35 per cent to 43.5 per cent in 2002 (excluding intra-
EU trade). The increase is mainly due to an increase in the US's share from 14 to 21 per cent
while the shares of EU (again excluding intra-EU trade) and Canada have remained stable at
about 19 and 2.7 per cent respectively. Turning to clothing, the ATC countries' combined share
of world imports has increased from 62 per cent to 67 per cent during the same period. Canada's
share has increased, but is only about 2 per cent in 2002, while the EU and the United States are
moving in opposite directions. The EU's share declined slightly from about 32 per cent to about
30 per cent, while the US share increased from 30 per cent to 35 per cent. Thus, the ATC
countries are relatively more important markets for exporters of clothing than for exporters of
textiles.

The second half of the 1990s saw changes in both the EU and the United States in relation to the
sourcing of textile and clothing imports, reflecting regional trade agreements and structural
changes in the textile and clothing sectors.

Growth in imports of textiles to the United States during the period 1995 to 2002 was about 9 per
cent annually in nominal dollar terms. We notice the sharp increase in Mexico's market share,
probably reflecting the impact of NAFTA. The regionalization of the market is further indicated
by the entry of Honduras among the 10 largest suppliers, while Japan has fallen out of the top 10
list. We also notice that low-income countries in Asia such as India and Pakistan have climbed in
the ranking at the expense of higher-income Asian suppliers such as Chinese Taipei and Hong
Kong, China; although India's market share has remained constant. Also China's market share
has been fairly stable during the period 1995-2002.

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 CONCLUSION
The developed countries have "temporarily" protected their textiles and clothing sectors for 40
years and these two sectors have represented anomalies in the GATT ever since the LTA came
into force in 1962. Among the most distorting measures to have prevailed are import quotas
allocated to some, mainly developing countries on a country-by-country and product-by-product
basis, while other countries face no quotas. This has led to a pattern of specialization where
countries with the strongest comparative advantage for textiles and clothing, such as China and
India, face binding quotas, while others receive investment in the sector motivated by unfilled
quotas and may well find that these investments are unsustainable in a trade regime based on the
principles of the GATT.

Most analyses of the impact of the phasing out of the ATC conclude that China and India will
come to dominate world trade in textiles and clothing, with post-ATC market shares for China
alone estimated at 50 per cent or more. This study replicates those predictions using a model
which is commonly used in such studies (the GTAP model). It is argued, however, that these
estimates only tell part of the story, as they are totally driven by changes in relative prices and
cost competitiveness. This paper has focused on other factors that are also important and which
have generally not been taken into account in the previous literature.

The countries that are most likely to lose market shares are those located far from the major
markets and which have had either tariff and quota-free access to the United States and EU
markets, or which have had non-binding quotas. These countries will undoubtedly face
adjustment challenges. Also local producers in EU, the United States and Canada are likely to
lose market shares. These producers have enjoyed more than 40 years of "temporary" protection,
but nevertheless face a long-term structural decline. Thus, adjustments costs due to changing
comparative advantage in the textile and clothing sector are not new, and it is not confined to the
ATC countries, as the experience of some of the major Asian exporter such as Hong Kong,
China; Chinese Taipei and the Republic of Korea shows.

To conclude, there is no doubt that both China and India will gain market shares in the European
Union, the United States and Canada to a significant extent, but the expected surge in market
share may be less than anticipated, as proximity to major markets assumes increasing economic
significance and tariffs are increasingly restraining trade due to the fact that products cross
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borders several times. Furthermore, other developing countries are catching up with China in
terms of unit labour costs in the textile and clothing sector and China has of yet not shown
competitive strength in the design and fashion segments of the markets.

BIBLIOGRAPHY

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